It took a series of further cases to clarify issues from the Barber judgement including the carve-out of benefits earned for pre-1990 service. But 28 years later, there is still one thorny issue still to be resolved: the complex issue of whether and how to deal with the inequalities arising from Guaranteed Minimum Pensions (GMPs) The Union’s landmark legal case, which starts in the High Court on 3rd July, is set to deal with this issue once and for all.
Shakespeare said lawyers “straight dream on fees” and there will be at least four teams of QCs and solicitors involved in this case; representing the Bank, the Pension Fund Trustee Board, three representative members from the different pension schemes and the Government. It will be one of the most important pensions cases to go before any Court in the last 28 years and will affect up to 5.5 million women in 2,400 pension schemes. It doesn’t get any bigger.
Guaranteed Minimum Pensions (GMPs) arrived on the pensions scene on 6th April 1978. Individuals could accrue an entitlement to an earnings-related addition to their basic state pension, called the State Earnings Related Pension Scheme (SERPS). Employers could ‘contract-out’ members of their pension schemes, which is what Lloyds did, if they provided pensions at least as good as a statutory minimum known as the guaranteed minimum pension (GMP). In return, the employer and the employees paid a lower rate of national insurance contributions.
The GMP is part of a member’s total pension. GMPs are, by their nature discriminatory between men and women, and that’s because:
- Men and women accrue GMPs at different rates;
- Men and women are entitled to GMPs at different ages (65 for men, 60 for women); and
- Many schemes, including the Lloyds schemes, apply different increases to GMPs than to non-GMP pension benefits.
The result is that a pension scheme which pays pensions which, in part, consist of a GMP usually pays pensions which increase at different rates for men and women. In most cases, but not all, women receive lower increases. GMP accrual was abolished from 6th April 1997. However, pension schemes are still liable to pay GMPs that have been earned for periods of service between 1978 and 1997.
Who Is Affected?
The discrimination adversely affects members who joined any of the Group’s final salary pension schemes and who were members between 17 May 1990 and 5 April 1997. Pension benefits don’t have to be equalised for benefits earned before 17 May 1990, and GMPs were abolished on 6 April 1997
The final salary schemes are:
- The Lloyds Bank No. 1 Pension Scheme (which includes the Scottish Widows Retirement Benefits Scheme and the C&G Final Salary Pension Scheme)
- The Lloyds Bank No. 2 Pension Scheme.
- The HBOS Final Salary Pension Scheme (which includes the Bank of Scotland 1976 Pension Scheme, the Halifax Retirement Fund, the Equitable Life Pension and Life Assurance Scheme, the Birmingham Midshires Pension Scheme and the Clerical Medical Staff Superannuation Fund).
Members of the Bank’s Your Tomorrow pension schemes are not covered by this action unless they were previously members of one of the Bank’s defined benefit pension schemes.
The Lloyds Case
In May 2017, the Lloyds Banking Group Trustee Board, following an agreement with the Union to put its 2,500 Employment Tribunal cases on hold, applied for the High Court’s directions on the following questions:
- Is the Trustee obliged to increase benefits in excess of GMP to give equal treatment in the overall pension?
- Is the equal treatment obligation only engaged if the affected member has an actual comparator?
- Is there a single correct method of equalising or a choice of acceptable methods?
- If there is a choice, which one should the Lloyds Trustee adopt?
What’s The GMP Case Worth?
GMP equalisation affects up to 2,400 pension schemes and millions of members. In most cases, the disadvantaged members are women. According to a number of industry bodies it’s going to cost up to £20bn to clear up the mess. We think that’s a conservative estimate and once you take into account all the associated legal and actuarial costs, the figure is closer to £30bn.
There are various methodologies that can be used to equalise the benefits and that’s one of the issues being put to the Court. That said, the cost of equalising benefits in Lloyds Banking Group could be up to £508 million. In respect of individual members, we estimate that the overall difference in benefits, depending on the calculating method used, could be worth up to £2,000 per female member of staff. Moreover, we are aware that a large number of members have taken advantage of the pension freedoms and withdrawn their pensions. If we are successful, those members, who meet the criteria set out above, will still be entitled to benefit from our GMP victory.
Members with any questions on this Newsletter can contact the Union’s Advice Team on 01234 262868 (Choose Option 1) or email us at email@example.com.